June 8, 2004

More Auditor Independence Woes for

Yesterday, Korn/Ferry International filed an 8-K reporting that it has been advised that the SEC staff is conducting an informal inquiry into independence issues arising out of payments made by Ernst & Young, the company’s auditors, to a company affiliated with a former director of the company for marketing services.

The Wall Street Journal reports today that Best Buy and TeleTech Holdings also are subject to the same SEC inquiry, as the same consultant sits on their boards and also use E&Y as their auditor (but these two companies have not yet filed a 8-K regarding the investigation). The WSJ points out the major difference between this inquiry and the recent PeopleSoft one (which led to E&Y being barred from obtaining new public clients for 6 months) – this new investigation involves only $377,000 for the director’s marketing consulting; the PeopleSoft matter involved $500 million.

Apparently the provision on auditor independence that the Staff is looking at is Rule 2-01(c)(3) of Regulation S-X. Rule 2-01(c) sets forth a non-exclusive specification of circumstances inconsistent with auditor independence:

“3. Business relationships. An accountant is not independent if, at any point during the audit and professional engagement period, the accounting firm or any covered person in the firm has any direct or material indirect business relationship with an audit client, or with persons associated with the audit client in a decision-making capacity, such as an audit client’s officers, directors, or substantial stockholders. The relationships described in this paragraph do not include a relationship in which the accounting firm or covered person in the firm provides professional services to an audit client or is a consumer in the ordinary course of business.”

According to the 8-K, E&Y conducted an internal review and confirmed its independence to Korn/Ferry – and based on that confirmation and its current knowledge, Korn/Ferry believes that E&Y’s independence was not impaired. Thanks to eagle eye Mike Holliday for helping out on this one!

Disclosure about’s IPO Cooling Off Period

On May 25th, I blogged about how’s IPO was delayed due to gun-jumping concerns. The company has filed an amended S-1 with a risk factor related to this potential gun-jumping and we have added it to our laundry list of “Risk Factors Regarding Gun-Jumping” in our “Disclosure Samples & Analysis” Practice Area. So far, the cooling off period appears to be nearly 4 weeks and counting…but some of this period might be attributed to the company’s own timetable for going to market.

No EDGAR on Friday

Out of respect for President Reagan, the SEC will be closed this Friday – and EDGAR will not be accepting filings.